Finance
Countdown
You will be shown 3
calculation questions on
the screen.
You need to complete
them before the
countdown music stops
The
difference
-£20,000
and
A business
has between
a profit budget
in 2010
of +
£140,000. It made
a loss of £20,000. What
£140,000
was
the profitadverse
variance?
£160,000
A £220,000
business achieved
a net profitxof100
£220,000.
/
£900,000
=
Its sales were £900,000. What was its net
24.4%
profit
margin?
A business achieved a net profit of £90,000.
£90,000
/
£1.2
million
x
100
=
The capital invested was £1.2 million. What
7.5%on capital?
was the return
Complete your Bingo sheet
with nine key words that
you associate with cash flow
Start Bingo
Use space bar (or click mouse)
to scroll through bingo balls
Inflows
Outflows
Forecast
Overdraft
Key cause of
Different
Sale and
from
Overdraft
Factoring
Outflows
business
Forecast
Inflows
Loans
leaseback
profit
failure
Loans
Sale and
leaseback
Different from
profit
Factoring
Key cause of
business
failure
You Choose!!!
Choose ONE method of improving
cash flow that you have identified
in the previous activity and
EXPLAIN ONE drawback of using
this method of improving cash
flow
One method of improving cash flow is by
obtaining an overdraft, however, a problem of
using this method of improving cash flow is
the interest payments on an overdraft are very high
and this may also be combined with a relatively high
overdraft arrangement fee therefore although an
overdraft can help manage short term cash flow
problems, long term, the high interest rates can
increase outflows
Variance Analysis
Question 1 – Calculate the total actual expenditure for February
£6,470
(£2,200 + £1,800 + £870 + £1000 + £600)
Question 2 – Calculate the TOTAL profit variance for January and
February
£2,330 F
Budgeted Profit for Jan = (£200)
Budgeted Profit for Feb = £2,200
Actual Profit for Jan = £2,150
Actual Profit for Feb = £2,180
Total Budgeted Profit
Total Actual Profit
= £2000
= £4,330
Exam question
Examine ONE
consequence for
Calzone’s of
delegating budget
responsibility to the
restaurant managers
Point - Delegating budget
responsibility to managers could
lead to an increase in motivation
for the managers.
Say Why - because of the
increased responsibility that they
have been given.
What are the effects? - Happier
team environment within the
restaurants.
This will mean the waiters and other staff in the restaurant
giving a much better service to Calzones customers
In turn, allowing them to become more competitive.
Exam question
Examine ONE
consequence for
Calzone’s of
delegating budget
responsibility to the
restaurant managers
In this question there are TWO key terms,
budget and delegation. There is NO need
to define BOTH at the start of your answer
as key terms only account for knowledge.
Just define ONE
Cash Flow and Profit
Cash Flow and Profit are
completely different yet this is one
area that many students struggle
to get to grips with.
Many profitable businesses can go
under because they run out of
cash. It is vital that you have a
good understanding of the
difference between cash flow and
profit.
Applying Cash Flow and
Profit to ACT Construction
Question 1 – Quick Calculation – How profitable is the house
extension and conservatory?
£36,000 - £18,000 = £18,00 profit
Question 2 – Using the example above, BRIEFLY explain how ACT
could encounter cash flow problems
ACT could encounter cash flow problems as the cost of the materials to complete the
work is £18,000 and they will only receive £3,600 at the beginning and the remaining
£32,400 after 7 months. During the 7 months building period they will need to pay for
materials and staff wages therefore although the work is profitable, they could run
out of cash during the building period
Question 3 – What method(s) could ACT use to manage its cash flow
during the 7 month building period? Briefly explain why
One method that ACT could use to manage its cash flow is arranging an overdraft.
They could purchase the majority of the raw materials using the overdraft facility and
then pay the overdraft off when the customer pays the remaining balance
Getting
into the
financials
at Greggs
Assessing the Financial Performance of Greggs
The percentage difference in turnover between 2011 and 2012
(701.1 – 681) / 681 x 100 = 2.95%
The percentage difference in net profit between 2011 and 2012
(44.5 – 41) / 41 x 100 = 8.5%
Calculating the net profit margin
Assessing the Financial Performance of Greggs
Net Profit Margin 2011
Net Profit Margin 2012
Formula = Net Profit (before tax) / Sales (turnover) x 100
Net Profit Margin for 2011 = 6.35% Net Profit Margin for 2012 = 6.02%
Remember, always show your working out
when performing calculations
Q2
1
Explain ONE reason why Greggs has
suffered a fall in their return on
capital employed
One reason why Greggs has suffered a
fall in their return on capital employed
is because they have invested heavily in
new store openings (100 in 2012) at a
time when sales have fallen resulting in
a reduced return for the capital that
they have invested
Improving Profitability
Exam Style Question
To what extent do you believe that the
best way for Greggs to improve its
profitability is to extend the sale of its
products through retailers. Justify your
view (15 marks)
Definition
Profitability
of
One reason why I think
that Greggs selling their
products
through
retailers is a good way
to
improve
its
profitability is
However, another way
in which Greggs could
improve its profitability
is
Overall , I feel that
Good
Answer
Profitability is the ability of a business to generate profits from
its activities
it gives Greggs an additional channel with which to sell its bakery
products. Greggs has had a very successful trial campaign with
Iceland showing that there is a demand for Greggs products through
other retailers. Selling their bakery products through retailers would
also allow them to increase revenue without any increase in fixed
costs allowing them to increase profitability.
by continuing with its expansion of Greggs Moments Coffee Shops.
Although this would lead to an increase in short term costs as well as
fixed costs sales of the current 5 coffee shops have been
encouraging. Therefore opening up more coffee shops will allow
them to increase the amount of customers they serve resulting in
more revenue and increased profitability.
that selling through retailers is perhaps the best way that Greggs can
currently increase their profitability. This is because at the moment,
Greggs sales are falling and therefore increasing fixed costs would not
be the most sensible solution as these still need to be paid even when
sales are declining. Selling via retailers has proved successful in the
past and would therefore allow them to increase revenue without an
increase in fixed costs resulting in increased profitability.
Time for a Coffee Break
Right first
time
Uses
Takes
inspectors at responsibility
the end of the away from the
process
workers
Empowers
employees
Values
1
10
2
20
3
30
4
40
5
50
Quality
May slow down 6
Can meet
Need to spend
checked at the
production
7
workers
money on
when first
end of the
8
esteem needs
staff training
implemented
process
60
Increases a
firms labour
costs
Quality
standards
need to be
agreed
Everyone
responsible
for quality
Workers may
not welcome
extra
responsibility
9
Possible staff
resistance
Can improve
staff
motivation
Does little to
encourage staff
to improve
quality
10
Increases
workers
11
responsibility
Which are features of Total Quality Management?
70
80
90
100
110
Next
Quick Calculations
Question 1 – In 2002, SAFC achieved 98.6428% capacity utilisation when
48,335 supporters attended for the visit of Liverpool. What is SAFC’s total
capacity?
49,000 ( (48,335 / 98.6428) x 100 )
Question 2 – Using the answer to Q1, if, in Sunderland’s next home game,
41,000 fans attended, what would be the capacity utilisation?
83.67% (41,000 / 49,000)
Can you Connect?
Labour
Productivity
Unit Costs
Price
Elasticity of
Demand
Price
Making Connections
An increase in labour productivity can lead
to a reduction in the unit costs, as the costs
are spread over more units of output
In turn, this could allow the business to
reduce the price and still retain the same
margin
However, the decision to lower the price
would depend on the price elasticity of
demand`
The Answer Doctor!
Exam question
Student Answer
Analyse the
benefits to
Calzones
restaurant of
having high
capacity
utilisation (8
marks)
“One benefit of high capacity
utilisation in Calzones restaurant is
that it can help increase units costs.
Another benefit of high capacity
utilisation is that it can help motivate
the staff in the business. Also high
capacity utilisation can make it hard
to do staff training and clean the
machinery as the business will be
really busy”
Write a ‘prescription’ to make the above answer better
The Answer Doctor!
1 Fewer arguments (2
rather than 3) and develop
each argument further
2 Check knowledge. High
capacity
utilisation
DECREASES unit costs
3 Read the question
carefully. It only asks for
benefits, not drawbacks
Please read
the case
study on page
17 which is all
about Ryanair
Analyse TWO factors that may influence the level of
customer service offered by the staff at Ryanair (8
marks)
One factor that may influence the level of customer service offered by the staff
at Ryanair is
the training budget that Ryanair allocate to each employee.
This will influence the level of customer service because
Ryanair's training budget per cabin crew is £800 compared to £1300. This
could lead to poorer quality customer service training which could
therefore impact on the level of service given.
Another factor that may influence the level of customer service offered by the
staff at Ryanair is
that many employees claim that they are overworked. Ryanair is the
worlds busiest airline which, combined with increased labour turnover of
18% means there is increase pressure on cabin crew.
This will influence the level of customer service because
cabin crew will not be able to give each passenger the required amount of
service and attention as the passenger numbers have increased as has labour
turnover. This will therefore result in worsening customer service on the
aircraft.
Quick Calculation
Question 1 – In 1985, Ryanair carried just 5,000
passengers compared to 76 million in 2011. What was
the percentage increase in passenger growth?
(£76m – 5,000) / 5,000 x 100 =
(75,995,000/ 5000) x 100 = 1,519,900 %
Manipulating data and
using this to support your
arguments can help
contribute towards GOOD
application even if you
have not been specifically
asked to perform a
calculation